Fuel Smuggling Presents Serious Threat to Hardware Stores

Hardware businesses in the South, particularly in counties such as Monaghan and Cavan, are being hit hard by solid fuel smuggling.

Heather Graham of Maurice Graham Ltd, Monaghan, commented: “Its impact on our solid fuel business has been severe, substantially reducing our fuel sales. We’re just seven miles from the border so the extent of the problem is very visible here.”

The core issue in Heather’s view is the Carbon Tax, which creates the incentive for cross-border fuel smuggling:

“It’s an example of politicians implementing changes without any concern for the impact on small businesses. At this stage, it’s very difficult to identify an overall solution to the problem but, at the very least, there should be more visible enforcement efforts.”

David Brady of J.P. Brady & Son Ltd, Virginia, Co. Cavan, said that he’s seen his fuel sales fall by 30% year on year. “Even taking into account the relatively mild winter, that’s a drastic drop-off in sales and it’s due in the main to unfair competition from fuel smuggling.”

He added: “The Carbon Tax seems to be with us for the foreseeable future but a reduction of the level of the tax in the next Budget would go some way towards reducing the impact of the problems it has created.”

Incentivising smuggling

According to John Keogh, CEO of the Solid Fuel Trade Group, an organisation that represents legitimate solid fuel trading businesses, a standard truck carrying 20 tonnes (t) of coal from Northern Ireland to the South without the application of Carbon Tax can save the perpetrator almost €1,200.

This situation arises as a result of the significant differences in the tax treatment of solid fuel in Northern Ireland and the South:

VAT in the South on solid fuel is 13.5% – In Northern Ireland it is 5.0%;

Carbon Tax adds €2.11 (€2.40 incl VAT) to a bag of coal in the South – £0 in Northern Ireland;

Carbon Tax adds €0.46 (€0.52 incl VAT) to a bale of briquettes in the South – £0 in Northern Ireland; and

Carbon Tax adds €27.25 (€30.93 incl VAT) per tonne of sod peat in the South – £0 in Northern Ireland.

John Keogh points out that these differences create a powerful incentive for illegal trade in a category of products that are very easily transported.

Scale of the problem

To understand the scale of the problem, John provides the example of a standard truck carrying 20t of coal from Northern Ireland to the South without the application of Carbon Tax and the differential in VAT. The perpetrator saves €1,195.61 in Carbon Tax alone. The difference in VAT increases the evasion ‘prize’ to €2,005.61.

John notes: “That’s too tempting for too many. Not alone does the Irish Exchequer lose the tax income, but the legitimate trade can no longer compete. However, that’s only part of the problem. There’s now an active online forum which explains how consumers can ring a courier company based in Dublin and arrange collection of coal from a coal warehouse in Co.Tyrone. Customers are also encouraged to ‘like’ the Facebook page, and it now has 7,726 likes. The problem is that many consumers are genuinely unaware that, if they do not personally accompany solid fuel for their own domestic use across the border, they cannot import it without paying Carbon Tax.”

Size of the market

The solid fuel market in the South is estimated in volume terms by the Sustainable Energy Authority of Ireland to be 410,000t, coal products; 203,000t, peat briquettes; and 700,000t, sod peat.

When Carbon Tax was introduced in the Finance Act 2010, its application to solid fuel was deferred until ‘a robust mechanism’ could be put in place to protect the market in the South from illegal imports.

At the time, this deferral recognised the potential for illegal imports if a large excise driven difference existed between Northern Ireland and the South. Solid fuel Carbon Tax was eventually activated in two phases between the 2013 and 2014 budgets. It has now been fully implemented since 1st May, 2014.

John Keogh acknowledges that Carbon Tax is going to be around for some time to come, and it is unlikely that there will be changes to the VAT code on solid fuel, but he makes the following recommendations to help address the situation:

a co-ordinated, multi-disciplinary approach comprising Revenue, HMRC, the Gardai, PSNI and the enforcement teams from the respective Departments of Environments in NI and the South;